SHARP INCREASE IN UNEMPLOYMENT RATE

The unemployment rate reached a 71-week high in the week ended February 25. It is possible that February 2018 will end with the highest unemployment rate in the last 15 or 16 months.

The unemployment rate has been rising steadily since July 2017. During last July, the unemployment rate had reached its lowest level of 3.4 per cent. The unemployment rate had been falling steeply and almost steadily since the demonetisation in November 2016.

The rate rose in August 2017 and continued to rise till it stabilised around 5 per cent between October 2017 and January 2018.

During the current month of February, the rate has been rising steadily well beyond this 5 per cent level. It was 5.5 per cent during the week ended February 4. In the next week it rose to 6.8 per cent and then 6.7 per cent. During the most recent week ended February 25, the unemployment rate was at 7.1 per cent.

At 7.1 per cent, the weekly unemployment rate is the highest compared to any week since October 16, 2016. Given that the recent three weeks have consistently shown unemployment rates close to 7 per cent it is possible to infer now that the unemployment rate is back to the levels just before demonetisation. However, they continue to remain low compared to the rates prevalent during February 2016.

February 2018 could end with an unemployment rate around 6.5 per cent. While the average weekly trends indicate 6.5 per cent, the 30-day moving average indicates 6 per cent. On February 25, the 30-day moving average was 5.98 per cent. A 6 per cent or higher unemployment rate in February would be a huge increase compared to the recent monthly levels of around 5 per cent. It would be higher than the 5.1 per cent unemployment rate during February 2017 but still much lower than the 8.5 per cent rate of February 2016.

A 6 per cent unemployment rate does not appear to be alarmingly high. But, the rising trend is alarming.

There are signs of a pick-up in the labour participation rate during February 2018. It is likely that the LPR, which has been hovering below 44 per cent, may just about breach that level by the end of the month.

However, the increase in labour participation seen in the weekly estimates shows up in higher unemployment.

The estimated number of persons unemployed who are actively looking for a job almost touched 31 million in the week ended February 25. This is the highest count of unemployed since October 2016. This seems to suggest that labour that is entering the labour markets in search of jobs is not finding them in sufficient numbers. The only redeeming feature is that labour is returning to the markets after they had left it in a big way after demonetisation.

The labour participation rate hovered between 46 and 48 per cent during January-October 2016, that is, before demonetisation. It then fell — initially below 45 per cent and then below 43 per cent by July 2017. It then rose just above 43 per cent but it has remained sub-44 per cent till January 2018.

This huge migration of labour exiting the labour markets after demonetisation and signs of their return in itself is a fascinating study of the deep impact that the event had on people and households.

The labour force shrunk by 30 million — from about 450 million before demonetisation to close to 420 million within six months of demonetisation. Now, more than a year later, we see a labour force that is close to 430 million. The labour force has still not recovered entirely. Remonetisation by the Reserve Bank of India was not enough to bring labour participation to its earlier level. The economic shock was deeper than can be measured merely by the injection of liquidity back into the system.

These aggregate values of the labour force include new entrants, some natural exits such as because of age, some who quit because of the shock of demonetisation and have still not returned and some who have come back. Deciphering these components from the net aggregates is a story yet to be told.

For now, it is imperative that labour that returns to the labour markets is met with jobs.

The coming months are not the best for employment. In rural India, activity will slow down after the rabi crop is harvested. Employment opportunities will be limited till the preparation for the kharif season begins around mid-May. In urban India as the academic year comes to an end in the summers, new graduates will start offering themselves for jobs. We hope that these graduates are greeted with respectable new jobs.

The author is managing director and CEO, Centre for Monitoring Indian Economy P Ltd